Question

On October 1, Orlando Gold Exchange paid cash of $57,600 for computers that are expected to remain useful for three years. At the end of three years, the value of the computers is expected to be zero. Requirements 1. Calculate the amount of depreciation for the month of October using the straightline depreciation method. 2. Record the adjusting entry for depreciation on October 31. 3. Post the purchase of October 1 and the depreciation on October 31 to T-accounts for the following accounts: Computer Equipment, Accumulated Depreciation— Computer Equipment, and Depreciation Expense—Computer Equipment. Show their balances at October 31. 4. What is the computer equipment’s book value on October 31?

Short answer

The depreciation expense equals $1,600.

Step-by-step solution

Step-by-Step SolutionStep 1: Calculation of straight-line depreciation

Straight-line depreciation (Annual) is calculated as follows:

$$\begin{gathered} \mathbf{StraightLineDepreciation}\mathbf{=}\frac{\mathbf{Cost}-\mathbf{ResidualValue}}{\mathbf{UsefulLife}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{57}\mathbf{,}\mathbf{600}-\mathbf{0}}{\mathbf{3}} \\ \mathbf{=}\mathbf{\$}\mathbf{19}\mathbf{,}\mathbf{200} \end{gathered}$$

Calculation of Depreciation for October Month

Depreciation expense for October month is calculated as follows:

$$\begin{gathered} \mathbf{DepreciationExpense}\mathbf{=}\frac{\mathbf{StraightLineDepreciation}}{\mathbf{NumberofMonthsPerYear}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{19}\mathbf{,}\mathbf{200}}{\mathbf{12}} \\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{600} \end{gathered}$$

Thus, the depreciation expense for October is $1,600.